As bitcoin gains worldwide attention, there’s lots of discussions lately about futures markets. With companies like LedgerX and some pending bitcoin-based derivatives products coming soon from CME Group and Cboe, leading to some people scratching their heads wondering — What are futures markets and what do they mean for bitcoin?
Everyone Keeps Talking About Bitcoin Futures Markets
Over the past couple of years, a few companies have been trying to apply derivative market trading into the world of bitcoin. Lately, people have been following the news of LedgerX swapping a few million worth of bitcoin-based futures products. Further, observers have heard about two of the world’s largest options markets, Cboe and CME Group, trying to build their own futures options tethered to the bitcoin economy. Many people are curious about how these types of trading markets will affect bitcoin’s price and volatility.
What are Bitcoin Futures and Derivatives Markets?
A bitcoin futures contract is a forward agreement to purchase or sell a specific amount of bitcoin, within a specified time frame for a set price.** So if you buy a bitcoin futures contract at a set price at say $10,000 per BTC; you agree to purchase the coin at the contracted rate, on the agreed upon date and the same goes for selling. Futures markets are the exact opposite of spot markets, and exchanges people traditionally use to trade bitcoin these days. Traditional types of spot trades occur immediately, in contrast to forward agreements scheduled for a specified payout date. Bitcoin-based futures derive their price according to the movement of bitcoin’s value, and these markets are very much correlated with the spot price markets…